All directors must submit self assessment tax returns. This is the case even if HMRC have not issued a tax return request.
We prepare the tax return for the directors of many of the companies that we work with. We also prepare the individual tax returns for many directors of larger companies who prefer to have their personal tax affairs dealt with outside of the large accountancy firms.
An important point for directors is that directors pay must be through payroll (i.e. with PAYE and NI deducted) except for very exceptional circumstances.
The only scenario where a director can invoice their own company is if the individual has a separate business already acting for other clients in a particular type of work and provides that service to the company. HMRC example is that of a practicing solicitor who is also a director of a retailing company, who provides some legal services to the company. However any work that is of the nature of acting as a director cannot be invoiced and any type of work that you don’t already have a business in cannot be invoiced.
There are also specific rules regarding the calculation of national insurance for directors. Director’s NI is calculated on an annualised cumulative basis, so no NI is paid until the pay for the year reaches the annualised pay threshold for NICs. A Director may, however, elect to pay NIC in the same way as employees who are not directors, in which case an adjustment is made in the final pay period to bring the total amount of NIC into line with the normal method of calculating Director’s NIC. This election is useful if the director is to be paid for the entire tax year at a fairly consistent rate, but can create unexpected liabilities if a director leaves part way through the tax year.
Please contact us for any further information about being a director or the taxation of directors, or if you are a director and would like to discuss your tax return or provide tax advice.